ICHRA APTC Rules..and practice

[Ken_BenefitScape]

(APOLOGIES FOR LONG POST)

In discussions with several practitioners a question comes up as to whether an offer of an “affordable” ICHRA to an employee is a permanent barrier to the employee receiving a premium tax credit (PTC)?

Most material indicates that the mere offer, even if rejected, dictates that the employee is ineligible for a PTC.

Some practitioners have held a broader interpretation of this prohibition, that when an affordable offer has been made) using one of the three safe harbors. These experts hold that protection from the A and B ACA penalties is one thing using the safe harbors and that whether an employee can receive a PTC is another matter depending on their household income.

In other words, offering affordable plan first rule is that employee is "initially  ineligible"  for a PTC. This initial eligibility is overruled when employee goes to a marketplace and based on their family income is eligible to receive a PTC.  The 3 safe harbors only apply to A/B penalty is a separate issue.

Comments???

Internal Revenue Bulletin: 2019-42

October 15, 2019

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HIGHLIGHTS OF THIS ISSUE

 

https://www.irs.gov/irb/2019-42_IRB#REG-136401-18

For clarity, the notice confirmed that an individual coverage HRA is an eligible employer-sponsored plan, and, therefore, an offer of an individual coverage HRA constitutes an offer of an eligible employer-sponsored plan for purposes of section 4980H(a). Consequently, if an ALE offers an individual coverage HRA to at least 95 percent of its full-time employees (and their dependents), the ALE will not be liable for an employer shared responsibility payment under section 4980H(a) for the month, regardless of whether any full-time employee is allowed the PTC.

The HHI safe harbors are optional and apply only for purposes of section 4980H(b). An ALE may choose to use one or more of the HHI safe harbors for all of its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. In addition, an ALE may use an HHI safe harbor only if the ALE offers its full-time employees and their dependents eligible employer-sponsored coverage that provides MV with respect to the self-only coverage offered to the employee. If, in applying one of the HHI safe harbors the offer of coverage is considered affordable, then the employer will not be subject to an employer shared responsibility payment under section 4980H(b) with respect to that employee, even if the employee is allowed the PTC.

2. Section 4980H Affordability Safe Harbors Regarding Household Income

Whether an employee may claim the PTC depends on the rules under section 36B, including the rules for whether an offer of coverage by the employer is affordable and provides MV.²⁵ However, the regulations under section 4980H provide certain safe harbors for determining whether an ALE is treated as making an offer of coverage that is affordable for purposes of section 4980H. More specifically, as noted earlier in this preamble, whether an offer of an eligible employer-sponsored plan is affordable, both for purposes of section 36B and section 4980H, depends in part on the employee’s household income. Because an employer generally does not know an employee’s household income, §54.4980H-5(e) provides that, for purposes of section 4980H(b), an employer may substitute for an employee’s household income an amount based on the employee’s wages from the Form W-2, “Wage and Tax Statement,” the employee’s rate of pay, or the federal poverty line, using the household income safe harbors (the HHI safe harbors).²⁶

Footnote 26"  ²⁶ Whether or not an employee has been offered affordable coverage for purposes of eligibility for the PTC is determined under section 36B(c)(2)(C)(i) and the regulations thereunder (as opposed to the section 4980H safe harbors).

 

 

[Luke Bailey]

Not sure if I completely understand the post, Ken_BenefitScape, but under proposed IRS regs an ICHRA is MEC. Since an offer of MEC (whether providing minimum value or affordable) gets the employer out of the A penalty, offering an ICHRA gets the employer out of the A penalty. To get the employer out of the B penalty, the employee has to either accept the ICHRA (whether or not it provides MV or is affordable, in which case the employee is covered by MEC and therefore cannot get PTC), or reject it, but it provided MV and was affordable. If the ICHRA was not affordable or did not provide MV, and is rejected by employee, then the employee can get PTC and employer will have B penalty for that employee, assuming employer is ALE, etc. Determining affordability for ICHRA is complicated, which is why it is subject to detailed proposed regs.

[Ken_BenefitScape]

Thank You very much, Luke. A clear concise treatment.

The one area that several practitioners argue about is as follows: 

Is there any set of circumstances where the below employee can get a PTC?: 

1. an employee receives an affordable ICHRA offer, (calculated by employer using the safe harbors)
2. Waives the affordable offer

Employee goes on Marketplace and recives a PTC?